Did Tesla Set A Bear Trap? Here's What's Happening With The Stock

Zinger Key Points
  • Tesla is trading in a confirmed downtrend, making lower highs and lower lows.
  • The break down from the bear flag on Wednesday may end up being a bear trap.

Tesla, Inc TSLA gapped down to start Thursday’s trading session after falling about 4% on Wednesday amid comments in a Delaware court suggesting CEO Elon Musk has begun taking steps to leave his leadership role at the company.

James Murdoch, a Tesla director, told the court Musk had identified someone as a potential successor to lead the EV giant, according to a report. Musk explained to the court that he viewed his role across his companies, such as SpaceX and Tesla, as more of an “engineer developing technology” than a traditional CEO.

Tesla declined 20% between Nov. 4 and Nov. 8, partly due to Musk selling nearly $4 billion in stock to help fund his Twitter acquisition. Since then, the stock has been trading mostly sideways on decreasing volume, which may indicate another big move is on the horizon.

Read what an analyst said about Musk stepping down

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The Tesla Chart: The large decline, paired with the sideways trading, settled Tesla into a bear flag pattern on the daily chart, with the pole created between Nov. 4 and Nov. 8 and the flag formed between Nov. 9 and Nov. 15. On Wednesday, Tesla broke down bearishly from the flag formation but on decreasing volume, which may indicate the pattern isn’t dominant.

  • Tesla is trading in a confirmed downtrend, with the most recent lower high formed on Tuesday at $200.82 and the most recent confirmed lower low printed at the $177.12 mark on Nov. 9. On Thursday, Tesla looked to be printing a doji candlestick near the opening price, which could indicate a bounce is on the horizon.
  • If Tesla bounces higher later on Thursday or on Friday, Thursday’s low-of-day may serve as a higher low, which would negate the downtrend. If that happens, traders can watch for big bullish volume to push Tesla up above $200, which would indicate the break down from the flag was a bear trap.
  • If Tesla fails to gain bullish momentum and falls under $177, the downtrend is intact and a continuation of the bear flag break is likely. The measured move of the bear flag suggests Tesla could fall toward $163.
  • Tesla has resistance above at $190.41 and $200.51 and support below at $177.59 and $166.71.
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